To the Future

Having carefully reviewed Samsung's current position and considered the challenges it faces moving forward, we have identified three possible strategies for Samsung to consider.

The first of these three possible strategies is centered around Samsung essentially maintaining its current course while making some changes to its model to maximize its comparative advantages in the market. Samsung has been, and continues to be the leader in DRAM and SRAM memory production. This strategy calls on Samsung to continue to produce these technologies, but reduce production of older DRAM technology as the market continues to tighten. Exhibit 5 shows that the production of these products is crowded, and Samsung holds only slight advantage in market share. However, this same data shows that it is virtually alone in the production of high-end memory. Samsung should look to shift emphasis towards additional development and production of these high-end memory products. Samsung has shown a consistent ability to produce the best products in a given sector, and this high-end market should be no different.

The second strategy is essentially a hedge designed to thwart some of the threat from growing Chinese market entry by setting up manufacturing operations in China. This option would allow Samsung to leverage China's cheap labor costs, which are roughly %57 lower than in Korea (Exhibit 7A). This reduction in labor costs would subsequently help Samsung compete with Chinese competitors on price, while simultaneously avoid having to license its technology to firms it may compete directly with in the future. Further, Samsung could potentially take advantage of generous Chinese government incentives to foreign investment in manufacturing. Discounted credit, land, utilities and taxes could provide an increased funding stream Samsung could apply to additional research and development.

This strategy, however, has several important disadvantages. Primarily, China's reputation for lax intellectual property protections raises questions about running manufacturing operation there. Second, a significant part of Samsung's success stems directly from its unique corporate culture and its ability to leverage is high human capital. By outsourcing, Samsung will be surrendering a large portion of this advantage, and it is uncertain if it can be re-created in another, non-Korean workforce.

The third and final strategy involves a full-scale partnership agreement with a Chinese memory company. Like the second strategy, this would allow Samsung to take advantage of lower Chinese labor costs and thus lower prices. Samsung would also potentially be able to leverage existing Chinese production capacity to adjust for increase in market demand.

This strategy shares several important disadvantages with the second strategy. Again, intellectual property rights in China are not well respected, and even